Weak commodities & deteriorating investment might force RBA to cut rates – ING
2 February 2015, 10:43
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According to James Knightley, Senior Economist at ING, with the ECB and BoC having eased policy, the RBA might cut rates 25bp given the weak commodity backdrop and a deteriorating outlook for investment.
Key Quotes
“At the December Reserve Bank of Australia meeting, the cash rate was left at 2.5% with the accompanying statement reiterating that “the most prudent course is likely to be a period of stability in interest rates”.”
“The RBA acknowledged that growth is likely to “be a little below trend for the next several quarters” and that while inflation was currently in line with target “a lower exchange rate is likely to be needed to achieve balanced growth in the economy”.”
“Since that meeting we have had 3Q14 GDP, which undershot expectations (0.3% QoQ versus 0.7% predicted), sub-consensus inflation (4Q14 CPI at 1.7% YoY versus 2.3% in 3Q14) and weaker consumer spending and confidence numbers.”
"We have also seen policy easing from the Bank of Canada and the ECB. As a result, it isn’t really surprising to see six out of 27 organisations surveyed by Bloomberg looking for a 25bp rate cut from the Reserve Bank of Australia on Tuesday.”
“We also think the balance of risks favour looser monetary policy.”
“With the plunge in energy prices pulling consumer price inflation lower across the world we expect Australian CPI to follow suit.”
“Moreover, with commodity prices in general having softened there is a deteriorating outlook for investment spending in Australian mines, which will weaken growth prospects. Consequently, we look for a 25bp rate cut with another 25bp move possible at the next meeting.”
Key Quotes
“At the December Reserve Bank of Australia meeting, the cash rate was left at 2.5% with the accompanying statement reiterating that “the most prudent course is likely to be a period of stability in interest rates”.”
“The RBA acknowledged that growth is likely to “be a little below trend for the next several quarters” and that while inflation was currently in line with target “a lower exchange rate is likely to be needed to achieve balanced growth in the economy”.”
“Since that meeting we have had 3Q14 GDP, which undershot expectations (0.3% QoQ versus 0.7% predicted), sub-consensus inflation (4Q14 CPI at 1.7% YoY versus 2.3% in 3Q14) and weaker consumer spending and confidence numbers.”
"We have also seen policy easing from the Bank of Canada and the ECB. As a result, it isn’t really surprising to see six out of 27 organisations surveyed by Bloomberg looking for a 25bp rate cut from the Reserve Bank of Australia on Tuesday.”
“We also think the balance of risks favour looser monetary policy.”
“With the plunge in energy prices pulling consumer price inflation lower across the world we expect Australian CPI to follow suit.”
“Moreover, with commodity prices in general having softened there is a deteriorating outlook for investment spending in Australian mines, which will weaken growth prospects. Consequently, we look for a 25bp rate cut with another 25bp move possible at the next meeting.”
